Page last updated at 14:01 GMT, Wednesday, 22 April 2009 15:01 UK

Budget signals new political era

By Ben Wright
Political correspondent, BBC News

Alistair Darling
The recession has turned politics on its head

Budget day used to be a predictably enjoyable event for Labour MPs.

Order papers were waved as golden rules were met and busts declared dead. Money was showered on public services and the Tories were taunted.

Prosperity framed politics for a decade and the government fought successive campaigns with the slogan of Labour investment versus Conservative cuts.

But the worst recession in decades has completely reshaped politics and today's Budget statement was made against a backdrop of deflation, rising unemployment and the worst borrowing figures since World War II.

We are now in an era of spending cuts and tax increases, regardless of the outcome of the next election.

Finding money to spend was always going to be tough. Tougher still for Mr Darling was the need to plausibly explain how the budget deficit can be filled in

The Conservatives called this a day of reckoning for the government and Labour MPs listened in silence as Alistair Darling listed a string of widely-predicted spending announcements, including money to help the unemployed pay their mortgages and extra resources for out of work under-25 year olds.

It was certainly not a second fiscal stimulus package but that was never on the cards. There simply isn't the money.

The borrowing figures came at 12.56pm. The chancellor rushed through them and the opposition benches barely had time to gasp at the news that borrowing will gradually drop from a high of £175bn this year.

In his reply to the statement, an incredulous David Cameron pointed out that the government will be borrowing £606bn over the next four years.

Finding money to spend was always going to be tough. Tougher still for Mr Darling was the need to plausibly explain how the budget deficit can be filled in.

Before the Budget, some in Labour's ranks talked hopefully about the chance to bring in a "people's budget" - a reference to David Lloyd George's dramatically redistributive budget of 1909.

They may feel they got it, with a new 50% top rate of tax on people earning more than £150,000 to be introduced in April 2010 - probably before the next election - and the reduction of pension tax relief for people earning over the same amount.

Fired up

These measures combined do not come close to plugging the financial hole the government is in but they are politically crucial.

First, they may fire up flat Labour activists a year away from the election who yearn for a bit of ideological red meat.

The new 50 pence rate breaks Labour's 2005 election pledge not to introduce a new top rate of tax but the activists will welcome this shot of economic populism.

Secondly, today's tax announcements put the Conservative party in a very difficult position. Should it match them?

Shadow chancellor George Osborne said he would not make reversing the new 45p rate a priority but what about 50p?

Could the Conservative Party base stomach that? And if not, where would they find the money?

Before today's announcements, public spending growth was already pencilled in to drop to 1.1% a year after 2011.

The Conservatives argued that should be squeezed even further and today the chancellor agreed, announcing a contraction of spending to 0.7%. Again, what do the Tories say now?

The chancellor's figures do not give any detail about where these savings will come from.

All parties are going to need answers to that question because the cuts to public spending sketched in this Budget go beyond anything mooted by the Conservative Party in recent years.

Politics has changed and the election starts here.

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